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Yangtze Business Daily News● Yangtze Business Daily reporter Shen Yourong

Huadong Heavy Machinery (002685.SZ), which once made a big investment to "chase the light", encountered setbacks and decided to give up.

On the evening of August 5, Huadong Heavy Machinery announced that it would terminate its investment in the construction of a 10GW annual production base for N-type high-efficiency solar cells in Bozhou. A year ago, when the company announced the construction of this project, the total investment was expected to be 6 billion yuan.

Huadong Heavy Machinery explained that the termination of the above-mentioned photovoltaic project was to reduce losses.

In March last year, Huadong Heavy Machinery also announced that it would invest 2 billion yuan to build a 10GW high-efficiency solar cell production base project in Peixian County, Jiangsu Province. How is the project progressing? Will it also be terminated? The company has not yet disclosed.

In addition to the failure of "Chasing Light", in 2017, Huadong Heavy Machinery spent 2.95 billion yuan to acquire 100% of the equity of Guangdong Runxing Technology Co., Ltd. (hereinafter referred to as "Runxing Technology") and entered the field of high-end CNC machine tools. Last year, after several attempts to sell Runxing Technology failed, Zhou Wenyuan, the original actual controller of Runxing Technology, took over the deal with a guarantee of 700 million yuan.

The planned industrial transformation encountered setbacks one after another, and Huadong Heavy Machinery's operating performance faced challenges. From 2020 to 2023, the company suffered losses for four consecutive years, with a total loss of 3.471 billion yuan.

Due to continuous losses, East China Heavy Machinery has not paid cash dividends for four consecutive years.

The "Chasing Light" plan was shelved

Once ambitious, but now rather helpless, East China Heavy Machinery announced the termination of construction of a major photovoltaic project.

According to the announcement, on August 5, the board of directors of Huadong Heavy Machinery reviewed and approved the "Proposal on Terminating the Investment and Construction of the Bozhou 10GW N-type High-efficiency Solar Cell Production Base Project and Cancelling the Project Company", agreeing that the company will terminate the investment and construction of the Bozhou 10GW N-type High-efficiency Solar Cell Production Base Project and cancel the project company Huadong Light Energy Technology (Bozhou) Co., Ltd. (hereinafter referred to as "Huadong Light Energy (Bozhou)"). At the same time, Huadong Heavy Machinery signed the "Contract Termination Agreement" with the Management Committee of Bozhou Wuhu Modern Industrial Park.

This is a major industrial transformation project of East China Heavy Machinery. On July 5, 2023, East China Heavy Machinery and the Management Committee of Bozhou Wuhu Modern Industrial Park signed an "Investment Contract" with effective conditions, showing that East China Heavy Machinery plans to invest a total of about 6 billion yuan to build an investment project in Bozhou City, Anhui Province.

To this end, East China Heavy Machinery indirectly established East China Solar Energy (Bozhou) with a registered capital of 600 million yuan. Its business scope includes: manufacturing of photovoltaic equipment and components, sales of photovoltaic equipment and components, solar power generation technical services, battery manufacturing, etc.

At that time, East China Heavy Machinery was full of confidence. The company said that from the date when East China Solar Energy (Bozhou) was put into production, it would achieve 80% of the output in the first full fiscal year; and 100% of the output from the second fiscal year, and the annual invoicing income would be no less than 10 billion yuan, the total tax paid annually would be no less than 200 million yuan, and the total number of people employed would be no less than 1,000.

According to the latest announcement, Huadong Heavy Machinery and Huadong Solar Energy (Bozhou) have invested a total of 1.1798 million yuan in investment projects. Among them, the investment projects incurred expenses of 787,800 yuan in 2023, and the cumulative expenses incurred in 2024 were 392,000 yuan. Huadong Solar Energy (Bozhou) did not generate operating income in 2023 and the first half of 2024, and realized net profits of -787,800 yuan and -392,000 yuan respectively.

Why was the investment project of 6 billion yuan terminated in just one year? Huadong Heavy Machinery explained that due to the overall decline in prices in the photovoltaic industry chain and the continued decline in battery prices, continued investment would not achieve the commercial purpose when the contract was signed. Termination of the investment and construction of the above project is a strategic adjustment to cope with the risks of the photovoltaic industry and the market, and to reduce losses.

In 2023, in order to transform to the photovoltaic field on a large scale, in addition to announcing the construction of the above-mentioned photovoltaic projects, in March of that year, the company also announced an investment of 2 billion yuan to build a 10GW high-efficiency solar cell production base project in Peixian County, Jiangsu.

At present, the company has not disclosed the progress of this 2 billion yuan construction project or whether it will be terminated.

Both transformation businesses are loss-making

In terms of transformation, Huadong Heavy Machinery was unsuccessful.

The layout of photovoltaics is not the first time that Huadong Heavy Machinery has promoted industrial transformation.

Huadong Heavy Machinery was listed on the A-share market in 2012. It is mainly engaged in the high-end equipment manufacturing business of container loading and unloading equipment, and its operating performance is average. From 2012 to 2016, the company's operating income increased from 425 million yuan to 2.14 billion yuan, and the net profit attributable to the parent company's shareholders (hereinafter referred to as "net profit") increased from 45 million yuan to 30 million yuan, while its net profit in 2010 before listing was 83 million yuan.

In 2017, Huadong Heavy Machinery made a large-scale acquisition, spending 2.95 billion yuan to acquire 100% of Runxing Technology's equity and entered the field of CNC machine tools. Due to the high premium acquisition, goodwill of 2.244 billion yuan was formed.

After the performance commitment period expired, Runxing Technology's performance changed, resulting in continuous losses for Huadong Heavy Machinery. From 2020 to 2023, the company's net profits were -1.073 billion yuan, -1.408 billion yuan, -179 million yuan, and -811 million yuan, respectively, with a total loss of 3.471 billion yuan in four years.

In 2020, 2021, and 2023, the company's goodwill impairment amounts were RMB 826 million, RMB 1.052 billion, and RMB 366 million, respectively, totaling RMB 2.244 billion. This means that the goodwill from the acquisition of Runxing Technology has been fully impaired.

In the absence of significant improvement in the CNC machine tool business, Huadong Heavy Machinery launched a plan to sell off Runxing Technology in 2023. After three unsuccessful public listings, Zhou Wenyuan, the original actual controller of the target, wanted to take over the target at a price of 700 million yuan through his actual controlling enterprise Guangdong Yuanyuan Technology Co., Ltd. (hereinafter referred to as "Guangdong Yuanyuan").

At that time, East China Heavy Machinery said that the sale of the target assets could further increase the company's cash reserves and help invest in new businesses such as photovoltaic cell module production and manufacturing.

However, the sale of assets encountered difficulties. On February 21 this year, Huadong Heavy Machinery announced that Guangdong Yuanyuan's progress in raising funds had been delayed.

In order to raise money, Zhou Wenyuan frequently sold off his holdings in East China Heavy Machinery.

Putting aside the issue of purchasing for 2.95 billion yuan and repurchasing for 700 million yuan, there are also variables as to whether Zhou Wenyuan can finally come up with 700 million yuan to complete the repurchase.

At present, Huadong Heavy Machinery's two industrial transformations have both encountered setbacks. According to the latest semi-annual performance forecast, in the first half of this year, Huadong Heavy Machinery's net profit and non-net profit are expected to be 20 million to 30 million yuan and 18 million to 27 million yuan respectively, turning losses into profits year-on-year.

In this regard, the company explained that the shipping market is improving, and the company has seized the opportunity of upgrading and transforming port machinery equipment. With the help of the company's sufficient reserve of orders on hand and the increase in domestic and foreign market share, it has done a good job in the delivery of key port machinery projects and customer service, and all orders on hand are advancing as scheduled. The CNC machine tool business is the company's major asset sale business in 2023, and the reorganization is currently being implemented. In the first half of this year, the company further increased its efforts to recover accounts receivable, recovered some old money, offset credit impairment losses, signed new orders and shipped them, and digested the depreciated inventory. As for the photovoltaic business, the company's photovoltaic battery module business was affected by the overall severe and continued decline in prices in the photovoltaic industry chain and the continued low prices of battery cells.

It can be seen from this that both the CNC machine tool business and photovoltaic business that East China Heavy Machinery has transformed into are loss-making.

How will Huadong Heavy Machinery develop in the future? Will it continue to look for new directions for transformation?